Pennsylvania Supreme Court Splits Over Tax Appeals

On February 28, 2023, the Pennsylvania Supreme Court split 3 - 3 in GM Berkshire Hills LLC v Berks County Board of Assessment and Wilson School District, leaving in place a school district’s ability to target recently sold properties for real estate tax assessment appeals. The three opinions discussed below are available here, here and here.

In 2017, in Valley Forge Towers Apts N, LP, the Pennsylvania Supreme Court upheld the ability of school districts, like property owners, to challenge the value of real estate for real estate tax purposes. In Valley Forge Towers, the Court held that if the school district targeted specific types of properties, while not appealing properties in other classifications, the appeal would violate the Uniformity Clause of the Pennsylvania Constitution.

The question in Berkshire was whether the Wilson Area School District’s policy of appealing recently sold properties where the imputed fair market value underlying the real estate tax assessment was more than $150,000 less than the sales price violated the Uniformity Clause. The property in question had sold for $54 million and the imputed fair market value of its assessment was $10.5 million. The Commonwealth Court upheld this practice as constitutional and by splitting 3-3, the Supreme Court upheld the Commonwealth Court decision.

There were three opinions in this case, one Opinion for Affirmance and two Opinions for Reversal, neither of which are precedential.

In the Opinion for Affirmance, Justice Mundy noted that “[w]hat the Uniformity Clause does prohibit is the systematic differential treatment of a subclass of property defined, for example, by property type or residency status of the owner…Use of monetary figures and recent sales data is qualitatively different…A sales price thus has two features making its use consistent with uniformity; it is not unique to one subset of property within the district; and as long as the transaction is undertaken at arm’s length; it reflects the property’s fair market value, an important piece of evidence in determining whether the [property is properly assessed].”

In one of the Opinions for Reversal, Justice Donohue wrote: “I fail to see how the school district’s policy does not create an unconstitutional subclass of properties, which can be described as ‘properties recently purchased at a price exceeding an established threshold.’” That Opinion for Reversal also explained that “selecting only newly purchased properties for an assessment appeal creates a sub-classification of properties because this sub-classification excludes the vast majority of properties in the school district. A newly purchased townhouse, identical to the townhouse of a neighbor in a contemporaneously built development will be subject to an assessment appeal and the neighboring townhouse will not. The owner of the recently purchased townhouse bears a disproportionate share of the tax burden in contravention of the Uniformity Clause.”

Because the Supreme Court split 3-3, resulting in the Commonwealth Court decision being upheld, the Opinion for Affirmance does not have precedential value and can be challenged again in the future. In Pennsylvania, with few exceptions (e.g., new construction, new improvements, demolition, etc.) real estate may only be reassessed as a part of a county-wide reassessment. Outside of Philadelphia, that process occurs very infrequently, often only every couple of decades. If appeals that target recently sold properties are not permitted, the only means to increase the assessed value of a property that sold for more than its assessment would be through a county-wide reassessment. Until the Court takes up the issue again, school districts likely will continue to target recently sold properties for real estate tax appeals. Buyers should take this possibility into consideration when determining the appropriate purchase price for a property.

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